Report finds potential for insurance savings under consolidated coverage

Nov. 21--The state or federal government covers 340,000 people in Alaska and retirees out-of-state, spending $3.5 billion per year between Medicaid and federal and state employee groups.

Uncle Sam pays $1.51 billion for 42 percent of those people as Medicaid, associated with the federal Medicaid match, the portion of Medicare payments estimated to cover eligible state retirees, and federal funds associated with the individual market.

Alaska pays $2.05 billion a year, covering its share of Medicaid and 58 percent of all government employees.

Could there be considerable savings in consolidating these groups by creating a Health Care Authority, or HCA, to oversee it?

Sen. Pete Kelly's omnibus Medicaid reform bill, Senate Bill 74 passed in 2016, required the study into an HCA as a way to help the state bring down costs and achieve efficiencies. PRM Consulting Group, the Pacific Health Policy Group and Mark A. Foster &Associates analyzed public employee health plans, Medicaid and the Alaska insurance market to find possible answers.

Key findings were presented before a breakfast group at Commonwealth North Nov. 17 by Emily Ricci, the chief health care policy officer at the Alaska Department of Administration and Mark Foster, the principle consultant at Foster &Associates.

Ricci summarized the 400-page Health Care Authority Feasibility Study, compiled during six months in 2017 for the Alaska Legislature.

The study concludes that there are definite benefits of establishing an HCA. It would consist of people in the Medicaid program, Alaska school districts, state retirees, all union bargaining groups, political subdivisions (first and second class cities, and boroughs) and those in the individual market, Ricci said. But the study poses serious questions for consideration as it relates to Medicaid integration or coordination in an HCA.

"It will be challenging, managing billions of dollars in annual spend," Ricci said.

Some employees may balk at joining a reconfigured mandatory pool for insurance, she added. But given the huge current costs to the state and benefits of finding better values, the bottom line of the report is that there are good reasons to pursue an HCA. The idea will need further analysis and vetting, however, to avoid unintended consequences, Ricci said.

An HCA is an entity that would be operated by a board of directors to identify opportunities to coordinate plan administration and consolidate purchasing for individuals whose health benefits are funded directly or indirectly by the state.

It would have the ability to buy insurance on behalf of marketplace users and government employees. A larger pool of participants and ratepayers would theoretically lower costs for all involved, Ricci said.

The study addresses the statutory requirements outlined in SB 74 and are intended to begin the conversation on the difficult discussions of what Alaskans see as the future for publicly funded health care, Ricci said.

Washington and Oregon provide models for a similar system, but Ricci said the study concludes there are no fitting modelsout there for Alaska to adopt.

Currently a patchwork of policies divide the state pie this way: $615 million per year for Medicaid recipients; $546 million for retired public employees; $307 million for State of Alaska employees; $315 million for school districts, $65 million for University of Alaska employees; and various political subdivisions at $216 million.

A key finding is that Alaska pays 60 percent more than the Kaiser Family Foundation and other local governments in western states. Consider that the State of Alaska, UA and school districts currently manage, administer and procure their own health coverage. The cost was found to be $21,738 per employee per year in 2017 according to PMR Consulting Group's study.

This compares to an estimated national average of state employee health plan spending at $13,907 per employee per year.

"The extraordinarily high and rapidly escalating cost of Alaska public employee health plans places a huge strain on public personnel budgets and presents a strategic challenge for Alaska public employers seeking to attract and retain employees by offering competitive wages and benefits -- as benefit costs rapidly escalate they tend to crowd out wage growth, especially among entry level positions and early career employees," the study found.

Savings could be found in consolidating a wide range of health policies, Ricci said. They could move to a more simplified tier system. School district health plans, which vary considerably, also could benefit from better efficiencies, Ricci said. There may be a provider bid process to bring competition into the purchase of health care.

Foster, who analyzed Alaska markets, was tasked with providing peer review analysis and developing purchasing strategies. He told Commonwealth North he serves on the board of a small telephone company in Southeast Alaska that is headquartered in Washington state. Because Alaska health coverage costs more, he wanted to continue coverage in Washington. He eventually had to move into the Alaska insurance pool.

"It's a problem. You go to get coverage and every year you look at the risk pool -- annual cost escalation is inevitably higher," Foster said.

To analyze costs, he looked at public and private claims data by employer to find out why are costs so high.

"Do we have a utilization problem of high utilizers collectively? Or do we have a price challenge, where the prices charged are higher?" He said. " When I drill into that data, I find a very high price challenge."

Prices for many specialty medical procedures and revenue for commercial payers were four times higher than other markets like Seattle, Foster said.

He then compared price escalation in Alaska and western states by looking at hospital and physician and clinical services.

"Hospitals escalated at 3 percent. In western states, their cost was 2.9 percent. Physician and clinical services was a different story," he said.

Where 2.5 percent increases were found in western states, in Alaska, the cost escalation from 2009-14 was more than 6.5 percent, he found.

"When I drill down into physician and clinical services, I find particularly high costs and escalating for that time period," he said.

His state claims look extended into 2016, and again he saw another rapid price escalation.

Foster believes the findings show there are opportunities with respect to price, "if you consolidate market power. That's the basis if my analysis."

As he looked back at prices and supply, Foster also saw a relatively rapid increase in new doctors and specialty clinics. This is creating a better environment for competition, which could start to force prices down.

"We've been adding more per population than other places. Based on that, we do have room to squeeze the price," he said.

Price negotiations and consolidation could bring savings on the order of 5 percent to 15 percent. Already, he said he learned of price discounts as more specialists in 2016-17 joined Alaska health networks.

"There is some price flexibility in the market by consolidating on the buy side. Public health trusts have had some success negotiating prices," he concluded.

Extensive public discourse, stakeholder engagement, and full legislative buy-in will be required for the state to move forward with any of these recommendations, Ricci said.

Public comments on the report closed Oct. 30. On Dec. 4, an addendum to the report will be released that will include comments. To read the report, go to http://doa.alaska.gov/hca.html.

Correction: This story was updated to clarify the amount of federal spending is also associated with the federal Medicaid match, the portion of Medicare payments estimated to cover eligible state retirees, and federal funds associated with the individual market.

Naomi Klouda can be reached at [email protected].

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(c)2017 the Alaska Journal of Commerce (Anchorage, Alaska)

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